Hampshire Fire and Rescue Authority Item 8

Finance and General Purposes

26 October 2006

Headquarters Development Phase 2 - provision of new vehicle workshops: project appraisal

Report by the Chief Officer

Contact: David Howells, Director of Corporate Services Telephone: 023 8062 6833

1

Summary

1.1

This project appraisal recommends that the Authority should proceed with the construction of a new vehicle workshops at the Headquarters site (Eastleigh) as replacement for the existing workshops' buildings located at Winnall, Winchester. The estimated total capital cost is £4m. The Committee will recall that this significant investment can only be fully justified in the wider context of the opportunity that the scheme provides for the eventual relocation of Winchester Fire Station to the current Workshops site.

2

RecommendationError! Bookmark not defined.s

That it be a recommendation to the Authority:

2.1

That provision be made in the Authority's capital programme (2006/07 starts) for a scheme [`Headquarters Development: Phase 2'] to provide a new vehicle workshops building at the Headquarters site, Eastleigh at an estimated total capital cost of £4m.; and

2.2

That approval be given to let a contract using the South East Centre of Excellence (SECE) Project Framework Agreement for the construction of the new building, plant and equipment to Brazier Construction (a division of Kier Regional Limited) at a cost not exceeding £3.7m

3

Introduction Error! Bookmark not defined.and Background

3.1

At its meeting on 13 September 2006 the Authority considered a draft outline business case for the relocation of vehicle workshops and associated capital schemes. This report had previously been approved by the Asset Management Working Group (at its meeting on 22 June 2006) and subsequently by the Finance and General Purposes Committee (at its meeting on 27 July 2006).

3.2

In approving the outline business case, Members were mindful of the following factors:

· Significant operational difficulties will arise in the medium term at both Winchester Fire Station (due to the changes in duty system) and the Winnall workshops (due to limited flexibility) which make their relocation desirable and ruled out taking `no action'.

· In the short-term, the lowest-cost option would be to relocate the Fire Station to Winnall and externalise vehicle maintenance. However, the potential gains were considered to be more than offset by the advantages of maintaining an in-house vehicle maintenance capability (as confirmed by the recent Best Value review presented to the Authority at its meeting on 31 May 2006).

· It was recognised that it would be possible to move the workshops to a rented building rather than to the Headquarters site. While it was felt that the Authority's (debt-free) ownership of the Headquarters site - together with and the strategic advantages of co-location of facilities - would make this option an unattractive option, it was nevertheless accepted that the rental option should be costed for comparison purposes.

· Long-term vehicle maintenance workloads are somewhat uncertain given the drive towards collaborative regional arrangements. However, it is just as likely that a new purpose-built workshop facility would attract additional business from the region and from the increase in the fleet arising from the allocation of the Government-funded Urban Search and Rescue Vehicles. It was also felt that this risk was sufficiently ameliorated in the short- to medium-term by the likelihood that the building - should it prove surplus to vehicle maintenance requirements - could be advantageously used in any future relocation of Eastleigh Fire Station.

3.3

On balance Members considered that the relocation of vehicle workshops to new facilities and the resultant opportunity to relocate the Winchester Fire Station to a modern building at the Winnall (workshops) site represented a potentially cost-effective solution. It was noted that capital funding was available to make the estimated net £3.5m investment of the inter-related schemes.

3.4

The Authority therefore resolved:

(a) That the proposed strategy and outline business case for resolving various building issues and needs, including those arising out of the Authority's Integrated Risk Management Plan, be approved.

(b) That, in the context of this proposed strategy, a full project appraisal, together with an indication of relevant timescales, be presented to the Finance and General Purposes Committee and to the Authority for the relocation of the vehicle workshop to the Fire and Rescue Service Headquarters site, Eastleigh; to include an assessment of the whole life costs of a rental alternative compared with the ownership option

(c) That, in order to obtain the best possible financial information to inform the project appraisal, approval be given to negotiate (without commitment) with the existing contractor on site (Brazier Kier) a tender price for the design and build of a vehicle workshop on the Fire and Rescue Service Headquarters site, Eastleigh.

(d) That a project appraisal for the relocation of the Winchester Fire Station to the Winnall (workshops site), together with an indication of relevant timescales, be presented to the Finance and General Purposes Committee and the Authority in due course.

(e) That officers be requested to present a report (initially to the Asset Management Working Group) on the potential benefits of relocating the Eastleigh Fire Station to the Fire and Rescue Service Headquarters site, Eastleigh.

3.5

As the Authority has approved the outline business case and the justification for the scheme, this project appraisal addresses the resolutions 3.4(b) to (c) (above) and concentrates on the financial implications.

4

The rental option

4.1

Members of this Committee will recall amending to an original recommendation that the project appraisal for the new workshops should, "include an assessment of the whole life costs of a rental alternative compared with the ownership option" (as recorded in resolution 3.4(b) above).

4.2

To this end, our estates adviser has identified an industrial unit (one of a group of three units within a large building) for rent in the Chandlers Ford area that offers a floor area of 27,577 sq ft - just below that proposed for the new build option at the Headquarters site (27,793 sq ft). The leasehold cost of renting the building is advertised at £7.50 per square foot per annum - i.e. £206,828 per annum. Interestingly, the unit is also available freehold at an advertised cost of £120 per square foot - about £3.3m.

4.3

The building would need to be fitted out as a vehicle workshop and this would involve capital expenditure estimated at a minimum £2.3m (to cover the cost of providing fully fitted servicing bays, a pump-test well, and fees). It should be borne in mind, however, that there may be additional costs of restoring a rented building to its original state if, for any reason, the rental agreement needed to be terminated either before or at the end of the lease. Finally, Members may wish to note that a neighbouring fire and rescue service has recently completed the fitting out of a vehicle workshop in a smaller rented industrial building at a cost of £1.3m.

4.5

The discounted cash flow cost assuming a 20 year lease at an annual rental of £165,462 (assuming, say, a 20% discount for a long term lease) paid quarterly in arrears and including the cost of fitting out the building (£2.3m) would be £4.9m. This calculation does not take into account periodic rent reviews over the period, or the impact of reinstatement of the building should that become necessary. It would be reasonable to assume that £4.9m is a minimum likely whole life cost

4.6

By comparison, the discounted cash flow cost of the new build option is £3.9m. However, this ignores the opportunity cost of the value of the land which could, if the Authority so determined, be sold to generate a capital receipt. How much that receipt would be very much depends on negotiations with the local planning authority over its future use and development, the granting of a suitable planning consent, who is in the market for such a site, and whether any retail element would be allowed, but if an equivalent area of industrial land (say 1.2 acres) was put on the open market it would be expected to generate around £1.7m. If this capital receipt is taken into account then the discounted cost of the rental option would reduce to an estimated £3.2m - some £0.7m less than the new build option. However, it should be pointed out that the value of the land at the end of the new build option is likely to increase in value and more than offset the value of the capital receipt (if immediate disposal action taken was taken to fund, say, initial fit out costs of a rented building).

4.7

In reality, though, given the Authority's interest in the potential to relocate the Eastleigh Fire Station to the Headquarters site (resolution 3.4(e) above), the view may be taken that to dispose of any of the Headquarters site at this stage might not be in the Authority's best longer-term property assets strategy and financial interests.

4.8

From this simple analysis - and ignoring the potential disposal value of the land value at the Headquarters site - it is concluded that it would be in the best long-term interests of the Authority to build the facility at Headquarters rather than fit out a rented building (especially given the many assumptions that have had to be made about the potential of discounted and future rental values).

5

The `Phase 2' new-build option

5.1

Members will recall that although the best value review of Workshops concluded that the vehicle maintenance function should be retained and continue to be managed in-house, it did not address the cost/benefit of providing new facilities either at the existing site or elsewhere. While there are a number of references to the inadequacies of the current facilities at Workshops and the inefficiencies that these cause, it would be unreasonable to conclude that the cost of developing new purpose-built accommodation - either on the existing site or elsewhere - could be fully justified in its own right. The Authority accepted that the scheme could only be justified in the context of the subsequent opportunities that arise by relocating the workshops and freeing-up the existing site at Winchester for a new Winchester Fire Station.

5.2

Nevertheless, the provision of purpose-built workshops with all the facilities accommodated in a single building would deliver significant benefits for the future organisation and effectiveness of the vehicle maintenance function. It would provide:

_ a modern building, fit for purpose, to replace the range of buildings of varying condition at the existing Winnall site that require some significant repair and improvement works in the short to medium term;

_ sufficient vehicle bays of a size to deal with day-to-day repair and servicing schedules reducing the need for the continual repositioning of vehicles;

_ facilities (plant and equipment) ergonomically laid out in a single building to enable staff to work more efficiently;

_ the capability to integrate the work and facilities currently carried out by operational equipment technicians based at the Headquarters site;

_ capacity to accommodate current and future vehicle servicing needs including vehicles (such as the Incident Response Units) allocated to the Authority by the Department for Communities and Local Government;

_ the opportunity to fully integrate the organisation and management of the currently separate transport (client) and workshops (contractor) functions;

the opportunity to undertake specialist vehicle maintenance work on behalf of neighbouring fire authorities and other partner organisations.

5.3

Importantly, the proposed workshops building would be an extension to the recently completed `Phase 1' building (accommodating stores and vehicle garaging) which was designed and built to allow for this further development and to make optimum use of the both the site and building facilities.

5.4

The estimated total capital cost of the scheme is £4m. The cost of the main contract - negotiated with Brazier Kier - is £3.7m (this includes: the cost of design and construction, the provision of a pump test well, the supply and installation of specialist plant and equipment (estimated at £185,000 - but note that negotiations are continuing with the potential sub contractor to reduce this figure). Other professional fees are estimated at £150,000); and a contingency sum of £90,000 is also included at this stage.

6

Contribution to Corporate Aims and Objectives

6.1

The relocation of vehicle workshops will free up the site at Winnall, Winchester that is recognised as an ideal location for a new Winchester Fire Station. It is strategically well located (because of its proximity to Junction 9 on the M3 motorway), and is situated in an area of the City that has a good mix of local industry and housing likely to make it easier to continue to operate at least one retained-crewed pump. The site will enable the development of a modern (industrial-style) building with accommodation and facilities better suited to the operation of a continuous, shift-crewed duty system - a key objective of the Authority's Integrated Risk Management Plan (IRMP).

6.2

Although the relocation will mean that those Workshops staff who also provide day-time retained cover at Winchester Fire Station will no longer be able to do so, they will however be offered contract to provide retained day cover at the Eastleigh - from the Headquarters site. This is another objective of the Authority's IRMP

6.3

Overall, the scheme will rationalise and make more effective use of the Authority's land and built estate assets.

7

Risk Analysis

7.1

The overall scheme is relatively complex. Key to the justification for investing in a new vehicle workshops building is the opportunity to develop a new fire station for Winchester and thus enabling the current (higher value) site and associated housing stock to be disposed of and the capital receipts used to substantially reduce overall capital borrowing approvals. Any major delays in the subsequent disposals would increase the temporary borrowing requirement and consequential impact on the Authority's revenue budget.

8

Resource Implications

8.1

Human resources

It is not anticipated that there will be any increases in staffing arising from this scheme.

8.2

Physical resources

The scheme will clearly replace a range of existing buildings at Workshops - some of which are in need of improvement and repair. Importantly it will provide the opportunity to redevelop Winchester Fire Station which has a number of major building defects and accommodation that is no longer fit for purpose.

8.3

Information and Communications Technology (ICT) resources

The ICT needs have been included in the main scheme.

8.4

Financial implications

Running costs

Given that there is no significant increase in total floor area, it is anticipated that the running costs of the existing workshops and the proposed new build will be broadly similar. No increases in staffing are proposed. The cost of business rates payable will increase by around £35,000 per annum reflecting the higher value of the new purpose made facilities but the final figure will largely depend upon negotiations with Valuation Office Agency over the allowances for the fact that this property would be part of a very large complex of buildings rather than a separate property in its own right elsewhere when a significantly higher increase could have been expected.

Energy costs are more difficult to predict. While the total floor area is similar the total volume of the proposed building is greater. However, the new building regulations (in force since April 2006) require enhanced levels of energy efficiency and the design and fabric of the building is such that these costs ought not to be significantly higher than current costs.

It would be prudent, however, to make a relatively modest contingency provision for any unanticipated running costs and transitional costs (mainly those associated with the relocation of staff). It is suggested that a provision of £55,000 be made from the first full year of operation (2008/09) reducing to £25,000 by 2011/12.

Capital financing costs

The estimated capital financing costs of the new workshops estimated at £4m are £360,000 per annum.

9

Equality Impact Assessment

9.1

The new building will be made accessible and enable the Authority to meet its obligations under the Disability Discrimination Act.

9.2

The proposals within this report are considered compatible with the provisions of the European Convention on Human Rights, the Human Rights Act 1998, and the Race Relations (Amendment) Act 2000.

10

Consultation

10.1

The staff at vehicle workshops have been kept informed of progress of the project and some have been actively involved in the preparation of the specification of the building, plant and equipment.

10.2

Winchester Fire Station's personnel have also been kept closely informed of the plans and potential timing of the scheme because of the knock-on implications for the operation of the current fire station its subsequent relocation and redevelopment.

Background Information (Section 100D of Local Government Act 1972)

The following documents disclose the facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of the report:

None

Note: The list excludes: (1) published works; and (2) documents that disclose exempt or confidential information defined in the Act.